Talk:JetBlue Airways Corporation (JBLU)
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What do you think about this company? If you have general comments, add a reply to this section by clicking the [edit] link here ----->
ValueSpider 18:54, 27 November 2006 (PST)
Jdkaye's very interesting summary
Jdkaye just posted a very interesting and thought provoking summary of the evolution of JBLU's financials. I am copying the text below for further discussion.--Wikister 14:55, 21 February 2007 (PST)
JetBlue is a relative newcomer to the airline industry. The company was founded just seven years ago, beginning operations out of JFK Airport, where the majority of its flights are still based. JetBlue marketed itself as taking an entirely new approach to the air travel, offering low fares, leather seats, sattelite DirectTV for every seat, and a friendly, unconventional and informal attitude. Put simply, JetBlue focused on distinguishing itself from its peers by creating a positive customer experience. The company was able to offer low prices by making unorthodox choices, like flying only one model of airplane, the Airbus A320 (making repairs, crew organization and gate configuration simpler), leaving out the bad food, lowering the turn-around time for airplanes between arrivals and departures, and negotiating favorable terms with an efficient workforce. JetBlue also hedged its fuel purchases, rendering it less volatile to price fluctuations on its most costly expense. Also, the company took a "point to point" approach rather than the traditional hub and spokes approach to configuring its flights. JetBlue enjoyed fantastic early buzz and expanded its operations aggressively over the next six years, all the while maintaining an enviable balance sheet with relative low debt (given its aggressive growth) and positive cash flows during a particularly difficult market cycle. Jetblue enjoyed a load factor (percentage of seats filled) significantly higher than the industry average.
Despite squeezing out more profits per plane than its competitors, JetBlue is famous for keeping its customers satisfied. It bumps less passengers than any other airline in the industry (aside from a disastrous holiday weekend in February 2007) and consistently wins customer satisfaction awards.
JetBlue hit a bump, along with the rest of the industry, when oil prices spiked in 2005 and 2006 in Katrina's wake. In 2005, the company posted an annual loss for the first time in its history-- a loss that the company attributed to "inability to raise fares to fully recover the increased cost of record high fuel prices." To illustrate the effects of high oil prices of Jetblue's business, consider that in 2000, it cost the company $19 in fuel to fly the average customer; in 2006 the cost peaked at $70 per passenger. The timing was unfortunate, since JetBlue was still pursuing an aggressive growth model and had just added a second airplane to its fleet, the Embraer 190. CEO and founder David Neeleman reacted quickly, announcing that expansion plans would be reigned in and the company would take a careful approach toward trying to regain reliable profitability. Rather than keep fares low enough to maintain a high load factor, Neeleman decided to raise fares to reflect higher fuel prices.
Lowering energy prices coincided with a slower paced growth model to restore profitability to the company. Net income for the fourth quarter of 2006 was ten cents per diluted share, compared with a loss of 25 cents per share. The yield per passenger was up 25% year over year. Operating revenues were 38.9% higher in 2006 compared to 2005. JetBlue posted a loss in 2006, but just barely. It expects to regain positive earnings for the year in 2007.
At the time of this writing, the company shares remain well below their historical highs. The share price turned sharply down when the company announced that it expected to post losses for the first quarter of '07 (despite its expectation of returning to the black for the year).
The company recently announced that it will be removing six seats from its main vehicle, the A320, giving passengers a bit of extra room. Paradoxically, however, this change will actually increase revenue for the company because it can use one less flight attendant on each flight. The company expects to save about $30 million annually in salaries, benefits and associated costs, and lose only $23 million in revenue. So although the move will improve the passenger's experience, it will save the company money.
